Defensive Claims Handling: The Best Response to Adversarial Process

One of the best known litigation adages remains true today -- When the law is on your side, argue law. When the facts are on your side, argue facts. When neither facts or law are on your side, just argue. However, ‘just argue’ has grown into a cavalcade of techniques that allow valueless claims to acquire settlement value. Among the value-adding tactics is the Reptile Theory, whereby plaintiffs’ counsel draw upon the primitive portions of jurors’ brains, calling upon them to protect their families and their communities by finding against the defendant – the Bad Actor who is placing Home, Family, Health, Safety at risk. Also popular are the attacks on defense counsel personally, through the use of ethics complaints, motions for sanctions, and, generally, use of the Rules of Civil Procedure in a legitimate but tactical manner. While each of these can affect defense strategy and complicate litigation generally, most claims personnel can stay out of the hand-to-hand combat and maintain an equilibrium that allows for sensible resolutions separate and apart from the fray.

Each of the pressures applied to defense counsel alone may not drive the final decision as to whether to pay a claim. It is possible that, for that reason, we have seen an uptick in efforts to involve claims personnel in the underlying claim. In particular, we have seen discovery that includes serving subpoenas on the insurer for claims files, which are produced during the course of discovery. We have also seen the medpay portion of a policy, which creates a first-party relationship between the plaintiff and the insurer, used as the basis of a first-party bad faith action, which can be brought against both the insurer and the claims professional, which actions may be filed during the course of discovery as well. Whereas the majority of medpay provisions include limitations (such as medpay as additional coverage to whatever medical insurance the plaintiff may have) and ancillary provisions (such as that the plaintiff must execute a release, allow access to medical records and submit to a medical examination), the exercise of those rights and the commensurate delays often result in more grounds for the bad faith suit. In our experience, the underlying claims settle quickly upon the filing of a bad faith action, given that plaintiffs’ counsel have applied pressure upon the insured, the defense counsel and the insurer personally.1

So, what is to be done? What is the best technique for preparing against this possibility?

Approach the claims file from Day One as if it were directly in view of plaintiff’s counsel.

Strictly adhere to the UTPA.

Provide timely responses to every request – and conduct an early review of the value and plan for the case.

Consult counsel as needed during the claims process.

Notify management at the first sign of tactical litigation.

Consider splitting files with separate adjustors for first and third-party claims arising from the same incident.

Document. Document. Document.

Transparency

Anyone who has gone back to case assessments and read with chagrin the adjectives applied to the claim, to the plaintiff or to plaintiff’s counsel will want to make particular efforts to maintain the transparency of the file. Frank assessments of the claim as without value, the plaintiff as untruthful or exaggerating, and counsel as a difficult person (as opposed to, for instance, a zealous advocate), for instance, that appear beyond work product (and potentially even there) will increase the complexity of any document production and can do nothing but place the insurer and defense counsel in a bad light. Also, defense counsel will want to make sure that they fully and fairly comply with the Rules of Civil Procedure, providing information, photographs, documents to the insurer and producing them in discovery if responsive to pending requests. Many jurisdictions (most particularly, federal tribunals) have broadened the scope of attorney work product to include cell-phone photographs taken at site visits, in particular, photographs of known problem areas for the defense or areas ripe for the defense. However, to the extent that an insurer places work product or attorney-client communications among the factual background, those materials are then open to production by subpoena. Claims personnel and defense counsel will want to understand going forward the nature of each submission and its role in the defense.

Unfair Trade Practices

No claims professional sets out to run afoul of acceptable trade practices, but the day-to-day of litigation and claims handling can divert attention from the regulations. It is key in an era of particularly aggressive litigation that the claims personnel prepare their files, their assessments, and their claims decisions in good faith. Some provisions are simple to follow – no misrepresentations of material fact. Some are more slippery: adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies. Phrases such as ‘reasonable’ and ‘prompt’ allow room for disagreement, and you will want to make sure that you and your defense counsel set a strict schedule and adhere to it. Fifteen business days to respond to a demand and then every thirty days thereafter. Or attempt in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. Once again, the defense perspective on ‘reasonably clear’ does not always comport with that of the plaintiff. Therefore, maintain your files as you do your thought process. What piece is missing? What remains undiscovered in this claim? And what is the plan for getting there?

Calendaring All Events, Communications

When you think of the number of files assigned to you and to the number of decisions you make every day/week/month, it is hard to imagine defending any one decision, the timing of any one response, the tone and tenor of communications – but that is the reality of the litigation.

Therefore, in the instance of medpay, for example, plaintiff is an insured under the policy, such that all of the courtesies and timing guidelines apply. Consider every transmission as it might appear in any subsequent bad faith claim. Write it today – let it sit for two days, and review it with new eyes. Maintaining an analysis of value and plan from early in the process may help mitigate against the inclination to throw money at the file if the stakes become personal and the irresistible urge arises to make it go away – NOW. After all, every action causes a reaction, and you will want to plan your steps as best you can from inception.

Consult Coverage Counsel, As Indicated

As no doubt your experience has taught you, nagging questions and concerns may diminish short term, but they always surface and/or fester long term. If you have concerns about the stance you are taking on coverage, if you are unclear on stacking provisions, if you feel as if you are proceeding blindly, stop. Engage coverage counsel. Not only might you learn the legally supportable answer, you also have a supportable position. You can document your file with your questions and counsel’s recommendations. You are once again planning for the best, preparing for the worst in terms of outcome. You are being proactive.

No Surprises

Whereas the arrival of a subpoena may signal this novel prosecution strategy, other indications may include the level of discord arising from counsel in the litigation. At the first sign of one of exponential disharmony, you will want to elevate the issue and the file, and advise your manager (and potentially your manager’s manager and on up the chain) that you may have encountered the newest value-adding tactic – expanding the underlying litigation to involve the insurer itself. These files may well find their way to upper management, and it would be wise of you to start the notification process early on. Place the issues on the radar and elevate them to the level that the day-to-day decisions that will achieve scrutiny later can be made at the appropriate level.

Splitting The File

Transferring the underlying file to uninvolved claims personnel can minimize or alleviate any allegation of impropriety, retribution or continuing ‘bad faith’ in the claims handling when or if a first-party bad faith claim is filed. Walling yourself off from the decision-making process on the underlying claim once you are a litigant and a claim handler will simplify your personal defense and the resolution of the underlying claim. Because you have maintained file notes, calendared all events and communications, maintained transparency and consulted coverage counsel along the way, this transition may be virtually seamless.

Document

With all of these cautions in place, every entry you make in your file is an opportunity to demonstrate your efforts to determine the true value of the claim without being distracted by the assaults and end-runs of ethical and trade practice ancillary litigation. Consider each file entry and each transmission as if it were being reviewed by plaintiff’s counsel, insurance regulators and your superiors. Whereas you may be fortunate enough to avoid that outcome, it is a practice that holds you in good stead even in the instance when no one reviews your work, your decisions, your Trade Practices. And if litigation teaches us little else, it does drive home that, if it’s not documented, you cannot easily prove that it occurred. Therefore, document, document, document. Easier said than done with your hundreds of files – but it is a time investment that serves you well.

As plaintiffs finetune their litigation practices and set their sights on whatever drives the settlement decision making, you should expect to be drawn into the process of leveraging for litigation outcome. Most of the preparation comes in understanding that the technique is out there, it is afoot and is being taught at seminars as how to add value to otherwise reduced-value claims. Join us in thinking ahead in terms of defending the day-to-day decisions you make. In following good trade practices, we can maintain the focus on the claim and simplify our personal and professional lives in the process.

1Our jurisdiction has also taken to sanctioning insurers who come to mediation with less than policy-limits authority. These sanctions can include assessment of costs or findings of contempt of court, complete with the specter of jail time.